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Mylan Laboratories’ Proposed Merger with King Case Solution


Thiscase illustrates theimportance of determining the value of the company through merger and acquisition activities in order to maximize the company’sfinancial health. Under the given scenario, Mylan Laboratoriesisone of the biggest drug companies in the world, which provides various products for blood pressure patients as well as for other treatments.

However, through the merger with King laboratories, it has been determined that its fast-growing product, Altace, would create more brand awareness in the particular market with the help ofthe collaboration of the acquired company’s sales force, since the company does not have its own sales force to execute the product’s long-term strategy.

On the other hand, there isa critical debate between the shareholders regarding the acceptance of the bid. The views of Perry are such that the acquisition would be useful to implement the strategy to enhance thebusiness operations as well as to bring improvement in the product. In contrast to it, Carl Icahn was against the offer due to his analysis thattheoffer was irrelevant and indicated overpricing of the particular company.

Given all these situations, Coury was still confident to considerthe offer because he knew that the industry would face intense competition in the near future, which could negatively affectthe sales of Altace. Therefore, it is concluded that if he offered the price of the company that would match the investors’ perception, then it can be said that the bid would lead towards success, and would allow both the companies to conduct their operations properly along with achievinghigher market share.

Valuation of King Pharmaceutical

From the results, it is identified that the valuation seems useful to determine the company’s expected value at aconsiderable period of time. In the case of King Pharmaceutical, there are various processes to determine the enterprise value that would be useful for the investors to analyze its worth as well as the company’s ability to perform better in the near future. On the other hand, the consolidated enterprise value of Mylan Laboratories and King Pharmaceutical would also allow to analyze the future valueof the firm, whichwould be more valuable for the investors’ decision regarding holdingor selling the stock.

Therefore, the first step to analyze the financial health of the company is to determine the projected income statement and balance sheet.The results indicate that King Pharmaceutical was growing at a face pace, and was expected to grow its sales by approximately 32% annually. This would lead to apositive impact over the expected net profit of the company, which would be useful for the firm’s long-term health as well as for the investors.

In the case of projected balance sheet, the total assets over sales were almost 2.47 times, which indicates huge tangible value, whereas current liabilities were almost none as compared to current assets, which indicates less focus on owing the liabilities and strong concerns on assessing assets to perform the operations efficiently.

The working capital is growing consistently, which indicates that the company is focusing more on utilizing the operational activities. Thus, under both the scenarios, it is identified that the company is performing well andis expected to grow at the same level. The pattern of free cash flows illustrates thatcash would spent onoperational level, thus the expected value at the end of 2008 would be 236 million, which indicates the company’s ability to expand the operations by utilizing the free cash flows.

The value of weighted average cost of capital at the end of 2003 would be 5.54%, whichindicates smallportion of debt as compared to equity. Thus, the net enterprise value by the use of discounted cash flows method would generate 15,847 at the end of 2008. This value would be consideredas the transparency amount to provideinformation to the particular shareholders as well as for the company’s executives in order to make decisions for the future. In the case of consolidated value, it seems that the total enterprise value of the post-merger company would be 21,045 at the given period of time. Thus, this indicates a positive sign to bid for the acquisition for the company’s future growth.

Offer price

According to the analysis of determining the target price of King Pharmaceutical, it is concluded that the offer price is beneficial for the company’s future growth due to the fact that it would increase the market share of Altace in collaboration with the sales force of acquired company. In addition to this, it wouldfurther increase the product diversification of Nebivolol.

The method of discounted cash flows method would also determine the enterprise value properly. Thus, under the two enterprise values of both King Pharmaceutical as well as consolidated one, it is concluded that it would allow the shareholders and executive directors of the company to make certain decisions regarding setting the mission as well as vision............................

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